Overhaul at Capita as it warns on 2018 profits

Just weeks after the collapse of Carillion, Capita’s shares have plunged more than 40% after the outsourcer warned on profits and announced a transformation plan to shore up its finances.

The group – which ditched its chief executive last year following a string of profit warnings and demotion from the FTSE 100 – said his replacement was demanding “significant change” as the business had become too complicated and burdened by costs.

Jonathan Lewis, who took charge in December, said the “immediate priority” was to strengthen the balance sheet.

Image: Jonathan Lewis says cost savings will not be enough to transform Capita. Pic: Capita
He warned there was “significant scope for cost efficiencies” – raising the threat of job losses among the company’s 75,000 staff – with full details to follow at a later date.
The shake-up would also involve selling non-core businesses, including ParkingEye and Constructionline, with Capita warning that the cost measures would not be enough to help shore up 2018 full-year profits which were now forecast to come in between £270m and £300m.
Mr Lewis said he would also move to launch a rights issue – raising around £700m from shareholders.
The company’s dividend, he confirmed, would also be suspended.
He told investors: “We are now too widely spread across multiple markets and services, making it more challenging to maintain a competitive advantage in every business and to deliver world class services to our clients every time.
“Capita has underinvested in the business and there has been too much emphasis on acquisitions to drive growth. As our markets have evolved, the group has not responded consistently to new customer demands.
“Since December, we have continued to experience delays in decision making and weakness in new sales.”

He added: “Cost savings and non-core disposals alone will not be enough. We have also taken the significant decision to suspend the dividend and seek equity.”

Image: Carillion went bust earlier this month
Capita has not been alone in facing a series of challenges in the outsourcing sector. Its major private and public sector contracts include operating London’s congestion charge scheme, the Jobseekers’ Allowance helpline and collecting the licence fee on behalf of the BBC.
Badly-performing contracts and tough trading have combined to hurt rivals too – with Carillion becoming a casualty on 15 January.
Commenting on Capita’s update Neil Wilson, senior market analyst at ETX Capital, said: “New CEO Jonathan Lewis is having a proper clear out to fix the business before it heads the way of its erstwhile peer.”
The demise of Carillion sparked a backlash from critics of outsourcing – with Labour saying it would take action to bring contracts back into the public sector.
TUC general secretary, Frances O’Grady, said: “Today’s profit warning from Capita is really worrying.
“That’s why the TUC is calling for an urgent risk assessment of all large outsourcing firms.

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“It’s essential the Government completes this quickly and is prepared to bring services and contracts in-house if they are at risk.
“We can’t afford another Carillion,” she warned.